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WorldCom, Creditors in Accord

Court approval of the repayment plan could allow the phone firm to emerge from Chapter 11 by the end of the year or in early 2004.

September 10, 2003|From Associated Press

WorldCom Inc. reached a breakthrough settlement Tuesday morning with its creditors, eliminating the thorniest obstacle remaining in its path out of bankruptcy protection.

Under the deal, WorldCom agreed to pay an additional $353 million to calm the last vocal objectors to the scandal-ridden company's plan to repay a small fraction of its $41-billion debt.

The deal to accommodate two groups of dissident creditors, brokered by WorldCom Chief Executive Michael Capellas, drew support from the major creditor groups, which already had approved the existing reorganization plan and own most of the company's debt.

The deal was reached hours before a scheduled hearing to consider the existing reorganization plan.

U.S. Bankruptcy Judge Arthur Gonzalez granted a request to adjourn until Thursday to let the parties officially approve the agreement and to revise the financial reorganization plan to reflect the new accord.

The vast majority of creditors already had signed on in favor of the existing plan, which would leave the No. 2 U.S. long-distance telephone company with debt of just $5 billion. Still, WorldCom, which will be renamed MCI once it emerges from bankruptcy, was motivated to get more creditors on board so as to avert some courtroom mudslinging and help put the company on a fast track to exit bankruptcy.

As it is, WorldCom is struggling to restore its reputation amid federal and state investigations into an accounting fraud in which $11 billion in profit was fabricated.

Complicating the effort is a probe of allegations that the firm has been disguising long-distance calls to avoid paying fees owed to local phone companies that connect such calls.

The active involvement of Capellas in the negotiations was "an assessment that it would be in the best interests of the company not to have a contentious confirmation hearing," said Marcia Goldstein, an attorney for WorldCom.

According to the new deal, a small group of creditors that would have been wiped out under the existing plan would instead be paid 44.5 cents on the dollar.

Another small group of creditors, which was slated to be repaid 36 cents on the dollar, would get 52.7 cents instead.

The hearing to consider the plan could conclude by mid-October, leaving the possibility that WorldCom could leave bankruptcy proceedings by the end of the year or in early 2004.

The deal calls for WorldCom to pay $188 million in cash and $165 million in new debt to the owners of $750 million of a class of debt securities issued by the company before its bankruptcy filing. That amounts to 44.5 cents per dollar owed.

In turn, that group would pay $19 million in cash to creditors holding debts owed to "trade" vendors who supplied goods and services to the old MCI before its acquisition by WorldCom.

In addition, the owners of the highest-quality debt issued by MCI before the acquisition have agreed to give $21.2 million from their settlement to holders of the trade claims. The combined $40.2 million would amount to nearly 53 cents per dollar owed.

Under the deal, the senior MCI creditors would be paid 79 cents on the dollar instead of the 80 cents previously called for.

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